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Did you take an Early Distribution
from Your Retirement Plan?
This economy has been rough on many people and some
taxpayers may have needed to take an early distribution from their
retirement plan last year. Here are ten facts about early
distributions.
1. Payments you receive from your Individual
Retirement Arrangement before you reach age 59 ½ are generally
considered early or premature distributions.
2. Early distributions are usually subject to an
additional 10 percent tax.
3. Early distributions must also be reported to the
IRS.
4. Distributions you rollover to another IRA or
qualified retirement plan are not subject to the additional 10
percent tax. You must complete the rollover within 60 days after the
day you received the distribution.
5. The amount you roll over is generally taxed when
the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA
and later take early distributions from your IRA, the portion of the
distribution attributable to those nondeductible contributions is
not taxed.
7. If you received an early distribution from a Roth
IRA, the distribution attributable to your prior contributions is
not taxed.
8. If you received a distribution from any other
qualified retirement plan, generally the entire distribution is
taxable unless you made after-tax employee contributions to the
plan.
9. There are several exceptions to the additional 10
percent early distribution tax, such as when the distributions are
used for the purchase of a first home, for certain medical or
educational expenses, or if you are disabled.
For more information about early distributions from
retirement plans, the additional 10 percent tax and all the
exceptions please contact me. There are many opportunities to work
around some of these problems.
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